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DougMacG
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« Reply #1150 on: December 30, 2011, 09:57:53 AM »

Escaping mention in Krugman's drivel on Ireland is a better example much closer to home.  Besides the opportunity to reign in government, cut tax rates while increasing revenues, who else is sitting on a treasure trove of energy?

http://news.investors.com/Article/596263/201112291827/tax-cuts-give-canada-economy-a-boost.htm

IBD Editorials
 
Tax Cuts, Less-Intrusive Gov't Help Canada Soar

 Posted 12/29/2011

Success: Away from the low growth and high regulation of an America under Washington's thumb, our northern neighbor is economically strong. As 2011 ends, Canada has announced yet another tax cut — and will soar even more.

The Obama administration and its economic czars have flailed about for years, baffled about how to get the U.S. economy growing.

In reality, the president need look no further than our neighbor, Canada, whose solid growth is the product of tax cuts, fiscal discipline, free trade, and energy development. That's made Canada a roaring puma nation, while its supposedly more powerful southern neighbor stands on the outside looking in.

On Thursday, Canadian Prime Minister Stephen Harper announced that he will slash corporate taxes again on Jan. 1 in the final stage of his Economic Action Plan, dropping the federal business tax burden to just 15%.

Along with fresh tax cuts in provinces such as Alberta, total taxes for businesses in Canada will drop to 25%, one of the lowest in the G7, and below the Organization of Economic Cooperation and Development average.

"Creating jobs and growth is our top priority," said Minister Jim Flaherty. "Through our government low-tax plan ... we are continuing to send the message that Canada is open for business and the best place to invest."

It's not just that Canada's conservative government favors makers over takers. Harper's also wildly popular for shrinking government. "The Harper government has pursued a strategic objective to disembed the federal state from the lives of citizens," wrote University of Calgary Professor Barry Cooper, in the Calgary Herald.

Harper also has made signing free trade treaties his priority. Canada now has 11 free trade pacts in force, and 14 under active negotiation — including pacts with the European Union and India, among others.

"We believe in free trade in Canada, we're a free-trading nation. That's the source of our strength, our quality of life, our economic strength," Flaherty said last month.

Lastly, Canada has pursued its competitive advantage — oil. And it did so not through top-down "industrial policy," but by getting government out of the way.

Harper has enacted market-friendly regulations to accomplish big things like the Keystone Pipeline — and urged President Obama to move forward on it or else Canada would sell its oil to China.

These policies have been well-known since the Reagan era. But in a country that's been institutionally socialist since the 1950s, Harper's moves represent a dramatic affirmation for free market economics.

For Canada, they've had big benefits.

Canada's incomes are rising, its unemployment is two percentage points below the U.S. rate, its currency is strengthening and it boasts Triple-A or equivalent sovereign ratings across the board from the five top international ratings agencies, lowering its cost of credit.

Is it too much to ask Washington to start paying attention to the Canadian success story?

These sound principles work every time they are tried, and they have led to a transformation in Canada.

Imagine what they could do in the U.S.
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JDN
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« Reply #1151 on: December 30, 2011, 10:24:24 AM »

"How about Canada?"

I have always like Canada; beautiful country and nice people.  They have an excellent National Health Care plan for example.    smiley   Canada's income tax rate is approximately 10% higher than ours.    smiley   Further, Canada's income tax system is more heavily biased against the highest income earners versus the U.S.     smiley   Makes sense to me...      grin
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DougMacG
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« Reply #1152 on: December 30, 2011, 11:04:01 AM »

"How about Canada?"

I have always like Canada; beautiful country and nice people.  They have an excellent National Health Care plan for example.   smiley   Canada's tax rate is approximately 10% higher than ours.   smiley   Further, Canada's income tax system is more heavily biased against the highest income earners versus the U.S.  smiley    Makes sense to me...     grin
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The policy arrow in Canada shifted the opposite of ours.  Investors know it is becoming a better and better place to do business.  Investors here keep getting the wait and see message out of Washington so the 'smart money' sits on the sidelines or goes elsewhere. 

For all your Calif. expertise you probably shouldn't tell someone here about Canadian heathcare.  Whether you look at Duluth, MSP or Rochester, MN, not only the medical clinics but the restaurants and hotels here benefit greatly from Canadian healthcare.  Let's leave that to the healthcare threads.

The point of economic growth in Canada is that we used to outperform them.

The top federal income tax rate in Canada (29%) is not higher than in the US (39.6% after the Bush Obama 'temporary cut' expiration) and not counting the Harry Reid surcharge: http://online.wsj.com/article/SB10001424052970204262304577068470560665732.html

The top corporate rate in Canada is 15% effective Jan 1 2012: http://www.canadabusinesstax.com/corporate-income-tax-rates/ 

The top federal rate in the U.S is 35%.  Besides cuts in Canada, China cut its corp rate (Jan 2008) right while the US economy began tanking and Japan tried to, delayed by an earthquake.

Canada values energy production as a booming industry.  We prefer to pay Venezuela, subsidize Brazil and block pipelines out of Canada.

Government revenues come from private sector vigor.  The question is not what kind of political economic system did Canada use to be.  The question is: What changed?
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DougMacG
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« Reply #1153 on: December 30, 2011, 11:36:59 AM »

The Canadian economy is closely tied to its largest trading partner, but avoided the housing crash for one thing because the CRAp (Community Reivestment Act program) did not apply to Canadian banks or houses.  Common sense regulations are as important as minimizing tax disincentives.

The Economist magazine stated that Canada had come out the recession stronger than any other rich country in the G7. http://www.economist.com/node/16059938

All is not perfect in Canada either, just noting current growth there that is very easy to do here.

'The Economist' notes the looming problems there, the national healthcare system in particular.  Once in place, those monstrosities are hard if not impossible to remove:

"But there is also a large dollop of good fortune behind Canada’s resilience. If parts of eastern Canada resemble Europe in economic terms, the west looks more like Brazil. Its mines, oil and gas producers and farmers have benefited from the commodity boom brought about by China’s appetite for raw materials. This boom brings a problem: it is helping to drive up the Canadian dollar, which risks making life more difficult for manufacturers back east. And Canada’s fiscal health will soon come under strain from the treasured but expensive public health-care system and an ageing population. There is little sign that the country’s politicians are ready to deal with either."
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JDN
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« Reply #1154 on: December 30, 2011, 11:43:45 AM »

"How about Canada?"

I have always like Canada; beautiful country and nice people.  They have an excellent National Health Care plan for example.   smiley   Canada's tax rate is approximately 10% higher than ours.   smiley   Further, Canada's income tax system is more heavily biased against the highest income earners versus the U.S.  smiley    Makes sense to me...     grin
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The policy arrow in Canada shifted the opposite of ours.  Investors know it is becoming a better and better place to do business.  Investors here keep getting the wait and see message out of Washington so the 'smart money' sits on the sidelines or goes elsewhere. 

I agree Canada is a great place to do business. that said, it's less competitive than America, with less peaks and valleys.  People are simply more content; good and bad.

For all your Calif. expertise you probably shouldn't tell someone here about Canadian heathcare.  Whether you look at Duluth, MSP or Rochester, MN, not only the medical clinics but the restaurants and hotels here benefit greatly from Canadian healthcare.  Let's leave that to the healthcare threads.

I bring up Canada's Health Care plan since that is a very real part of political economics.

The point of economic growth in Canada is that we used to outperform them.

I agree, but that is true for a variety of reasons.  Some include the good points you have made, but we have other unique problems like funding wars, (a trillion dollars plus) etc. that they don't have.

The top federal income tax rate in Canada (29%) is not higher than in the US (39.6% after the Bush Obama 'temporary cut' expiration) and not counting the Harry Reid surcharge: http://online.wsj.com/article/SB10001424052970204262304577068470560665732.html

The top corporate rate in Canada is 15% effective Jan 1 2012: http://www.canadabusinesstax.com/corporate-income-tax-rates/ 

The top federal rate in the U.S is 35%.  Besides cuts in Canada, China cut its corp rate (Jan 2008) right while the US economy began tanking and Japan tried to, delayed by an earthquake.

In Canada total tax and non-tax revenue for every level of government equals about 38.4% of GDP,[1] compared to the U.S. rate of 28.2%.[2]
^ "Index of Economic Freedom 2009: Canada". 2009.
^ "Index of Economic Freedom 2009: United States". 2009.


Canada values energy production as a booming industry.  We prefer to pay Venezuela, subsidize Brazil and block pipelines out of Canada.

Canada other than oil doesn't have much choice.  We do.  Further, I and many Americans are concerned about the environmental hazards of drilling.  Frankly, I'ld rather pollute Venezuela etc. than America.  Then again, the oil industry does offer good paying jobs.  Pros and Cons....


Government revenues come from private sector vigor.  The question is not what kind of political economic system did Canada use to be.  The question is: What changed?

I don't think Canada changed a whole lot.  I do agree we changed, albeit not all Obama's fault.  I just finished Steve Jobs biography.  Great book.  He is a liberal democrat and even he met with Obama and pleaded for regulatory changes and pro business changes.  Taxes were not the issue.  I agree wholeheartedly with Jobs.  We need to make the government supportive and more business friendly otherwise there will never be growth.
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DougMacG
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« Reply #1155 on: December 30, 2011, 12:08:13 PM »

You have points of agreement in there but I must say that if you would rather the U.S. buy our needed energy from Venezuela than from America, which causes our costs go up, our dollars to leave, our jobs lost, supports the wrong causes around the world, leaves us vulnerability to supply disruptions, we lose government revenues off the lost production, deficits, debt and interest payments forever on those losses, then I would rather defeat you than persuade you to think otherwise.

Is drilling "pollution" in Alberta really further from home than drilling "pollution" in ANWR.  Besides the straw argument of drilling pollution, I would check your map on that one.

The current issue is over a pipeline.  Is transport from Venezuela cleaner? (No!)
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JDN
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« Reply #1156 on: December 30, 2011, 12:16:27 PM »


The current issue is over a pipeline.  Is transport from Venezuela cleaner? (No!)

I'll be honest, I don't follow the drilling arguments closely.  But I thought the pipeline issue was over pollution and threats to our environment?  And if I had to guess, drilling in Venezuela and transporting the oil here is cleaner than drilling in America.  That said, while I have reservations about a pipeline from Canada, I agree, the advantages seem to out weigh the negatives.  I'ld vote for it.
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DougMacG
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« Reply #1157 on: December 30, 2011, 01:20:57 PM »

Working properly, a pipeline transports the oil inside the pipe.  smiley   The issue at hand is constuent group politics versus jobs and earned dollars in the economy - an easy choice for the President.  Freighters and vessels and trucks burn oil and pollute and crash more often than a pipeline.  We already have pipelines from Canada and pipelines inside the US.  How do people think natural gas gets around?

"I don't follow the drilling arguments closely."  - Other than mistakes and catastrophes, it is a very clean process.  The caribou were all for it.  The Alaskans are for it.  The North Dakotans are for it.  The Texans are for it.  But the Feds don't want you to do it.  In some areas, they own all the land.

We drove past the largest refinery in the region recently from an 8 hour round trip drive to a college visit.  My daughter commented on the plume of steam going into the air (extremely clean steam compared to how they used to be).  I don't know if she recognized the irony even with my pointing it out, that not wanting energy produced isn't compatible with all these non-essential drives that make up her life; there are perhaps a hundred colleges closer.  Much worse for business travel.  We could let the Chinese do that.  sad

If you want homes heated now, natural gas is the best answer.  If you want mobility, oil.  If you want alternating current at the outlet, then you will need coal and nuclear at the power plants.  For hobbies, I like wind and solar.  Our economy has energy requirements.  Earning income, enjoying freedom and building prosperity all involve energy consumption.  Consumption requires production somewhere.  If you don't produce it here, you will pipe dollars and jobs out in amounts that make the cost of two wars look like childs' play, and we are.  http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm Regulation to make production as clean and safe as currently and reasonably possible are great.  Policies that stop energy production in its tracks just punishes ourselves and is one of the ways we are screwing ourselves over for decades if not generations. 

One big argument against drilling in ANWR is that it would take 10 years to get up and running!  What do we care about oil 10 years from now?  That was more than 20 years ago.  Now we fund 'ugo to buy bad things from Mahkmoud with the same money.  And then deploy forces to stop them?  Who knew?

Look back ten years.  All that bickering about who got invited to Dick Cheney's energy commission.  No plan was ever implemented.  Just worse and worse public policies.  We have far more control over how safe and how clean our energy is produced and same for the other products manufactured if we do it here.
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JDN
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« Reply #1158 on: December 30, 2011, 01:41:33 PM »

Working properly, a pipeline transports the oil inside the pipe.  smiley   

Yeah, I suppose you could say working properly oil tankers merely transport the oil inside the tanker.   smiley  And oil wells working properly don't spill.  smiley

Other than mistakes and catastrophes, it is a very clean process.

Again, probably the same could be said of oil tankers and drilling.
But I get your point; there are negatives, but on the surface the benefits of a pipeline probably outweigh them. 

If you want homes heated now, natural gas is the best answer.  If you want mobility, oil.  If you want alternating current at the outlet, then you will need coal and nuclear at the power plants.  For hobbies, I like wind and solar. 

Each has pros AND cons.
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DougMacG
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« Reply #1159 on: December 30, 2011, 02:14:44 PM »

"Each has pros AND cons."

The energy use today is a fact, not an issue.  The choice of sending the dollars and jobs out instead of producing here is a part of a larger policy of choosing economic decline, and it didn't make the planet any cleaner.
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Crafty_Dog
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« Reply #1160 on: December 30, 2011, 04:59:26 PM »

Somehow I doubt the planet will be better off if the Chinese are the ones burning the Canadian oil instead of us.

Concerning Canada, with his permission here are some comments from Canadian Tricky Dog concerning the post on Canada:
=======


It is true - and yet beware the selective reporting of facts.

At the same time, Harper has _raised_ personal taxes by changing the rules for Canada Pension Plan and Employment Insurance. The limits on both have been raised such that many people will be paying up to $1000 more.

Oh there is more to this unreported tax increase.

It applies specifically to those with higher income. And the employer actually contributes about 2/3 toward this increase - so it impacts corporations directly too (as well as entrepreneurs and small business). And the increase relates specifically to our social safety net - pensions and assistance to the newly unemployed. So, in fact, this change reinforces one of our so-called "socialist" mainstays. Finally, the reason for this personal tax increase is due to address our rapidly mounting debt - which the corporate break will exacerbate significantly.

There is our inconvenient truth.

Think the Tea Party would follow suit for the good of the nation?
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G M
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« Reply #1161 on: December 30, 2011, 05:10:34 PM »

There is a simple solution that applies to both the US and Canada. Don't spend more than you can afford to spend.
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DougMacG
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« Reply #1162 on: December 30, 2011, 10:46:10 PM »

Thank you Crafty for getting the feedback from over the border.  To be clear, I did not assume all is good or solved in Canada. They just seem to be performing better than most places right now. The info I looked up was that individual rates were dropping to 29%.  I didn't post that because I didn't know rest of the details like what Tricky Dog comments - if deductions changed or offsetting tax increases.

The general point is that incentives are a little better overall I think, though not as good as claimed, and the economy is relatively strong.  

Certainly the energy policies improve personal income, corporate income and government revenues.
-------------
This discussion brings out an important point, there are two very different effects that come out of the tax policies:

1) The marginal rate, especially the top marginal rate, is the key indicator for incentive vs. disincentive to make an additional investment, to build, to grow, to hire, and

2) the total tax tells you how much money you transferred out of people's pockets over to the public treasury.

If you leave the tax rates the same but eliminate deductions, people lose more money to the government, all other things were held equal.  In that situation, a person might actually try to work more to replace income lost (or go broke).  Overall, the private economy is worse because people have less to spend and cut back their buying, without offsetting pro-growth policies.

In supply side policies, you typically lower the marginal tax rate for the next dollar earned.  If you end up collecting more in total it is because of the business that unleashes, not leaving people with less.  

Sounds like the Canadian plan and most proposals like that here have both of those qualities: lower the marginal rate but with other offsets like closing so-called loopholes that were yesterday's great idea to stimulate something.  On balance, it is probably a good thing anytime the marginal rate is cut significantly, but it depends on the rest of the details!
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Last point: "...debt - which the corporate break will exacerbate significantly. "

If I read it correctly, the top federal corp tax rate in Canada was 19.5% 2008, 19% 2009, 18% 2010, 16.5% 2011 and 15% effective January 1, 2012. (Plus substantial provincial rates) http://www.taxrates.cc/html/canada-tax-rates.html  For one thing, that is an incentive to defer income into the out-years.

It will be interesting to see if revenues collected at the lower rates actually go down.  I predict revenues instead will grow but that debt will go up anyway, if it is like here (and like GM points out), because of spending.
« Last Edit: December 30, 2011, 10:54:24 PM by DougMacG » Logged
Crafty_Dog
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« Reply #1163 on: December 31, 2011, 12:12:43 AM »

Doug:

I get and agree with your point.  Because I respect Tricky Dog's perspective (even though his politics are considerably different than mine and those of most of us here) I thought to get his input; we search for Truth around here smiley

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G M
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« Reply #1164 on: December 31, 2011, 12:26:24 AM »

Doug:

I get and agree with your point.  Because I respect Tricky Dog's perspective (even though his politics are considerably different than mine and those of most of us here) I thought to get his input; we search for Truth around here smiley



Can anyone look at the world and reasonably think big government and central planning of economics works? I mean marxists have been the flat earthers of economics forever, but now Keyensians are flaming out as well.
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Crafty_Dog
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« Reply #1165 on: December 31, 2011, 12:41:04 AM »

Ummm , , , wasn't the original point that the Canadians are doing better than us now because in great part they are moving towards freedom and we are moving away from it?
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G M
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« Reply #1166 on: December 31, 2011, 12:53:41 AM »

Exactly, economic freedom combined with the rule of law creates prosperity, while big gov't and central planning eventually crash and burn. No matter where we look. If we have gov't healthcare here, where will the Canuckistanis go for medical treatment?
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trickydog
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« Reply #1167 on: January 01, 2012, 03:02:38 PM »

Tricky checking in after being away for the holidays.  Thanks to Crafty for forwarding a short reply I made on the Canadian situation.

While I am likely of another ideological stripe than many of you (judging from the rhetoric), I am far more interested in the ground truth - and good critical thinking - than odiously repeating any dogma.  Regardless of whether one personally appreciates the recent actions of our government, one can hardly attribute Canada's strong economic state to them.  There simply has not been enough time to show the consequences.

Check back in 5-10 years once the effects from the changes have filtered down through the economy.  And through the social fabric.

If you want to look at the current evidence as indication of anything, consider that the strong banking regulatory environment (established long ago by more liberal governments) is in part responsible for our solid footing.  And that we are a heavily resourced country with high international demand, particularly from Asia where we have very strong ties.  And that we in Canada have not experienced the same degree of instability because we are not as free-market based (even if you take a Friedmannian view that they are not free enough and any issues arising are due to the extant limitations) as the US.  Our relatively strong system of checks and balances has meant that we could ride this period out with less direct and collateral damage.

The Harper government only just achieved a majority last fall - they have been riding a minority government for several years - so it would be misleading to read the current signs as if their policies of the last few months are responsible.  Prior to that, the centrist (for Canada) Liberal government was in power for decades and was primarily responsible for most of the current policy and our economic position.  So if you want to find something laudable about our strength, look a bit further back in our history instead of singling out decisions made in the last 2 months.  It takes years to define a stable economic position.

Of course, one of the things the current Harper government is in the process of doing is dismantling many of those shielding mechanisms - the 67 year old Canadian Wheat Board (which buys from all wheat farmers and represents them on the international market) has just been killed off.  Harper is certainly a fan of free(r) markets and believes this change long over due.  And let's check back in 10 years and see if we are all that better off.

He is also dismantling our long gun registry (being contested by the provinces), introducing a new hard-on-crime bill (without explaining how the significant new costs will be borne - and despite the general view that the same approach has failed in the US, economically as well as socially), backing out of climate change commitments, turning away from the UN, and building up our military.

Which may sound like an attractive cup of tea - but note that he is simultaneously severely limiting debate in Parliament, raising personal taxes (as mentioned), reorganized the Senate by adding 35 new appointed senators, reducing the transparency and accountability of the government (e.g. closing committee meetings to the public watchdogs who are supposed to oversee and report on the government), dropping our detailed census (that provides facts for effective public policy), and committing the country to expensive, non-economic programs (e.g. military spending, military activity, new prisons, border security unification) without proper accounting and in the face of mounting debt. 

Note that, although the government holds majority in House and Senate, they only won 40% of the popular vote - and yet they regularly claim a mandate from the people as the justification for rushing bills through without more than cursory debate.

So before anyone including the media starts cherry-picking facts from our experience and imagining a causal relationship with our economic performance, I would encourage you to research a little deeper.

There is a bald irony present:  When our healthcare system was being referenced as a possible model for the US, most (including myself) were quick to say that Canada has a very different scale and nature.  Any comparisons would hardly be appropriate or meaningful.  But now that the actions of our current government align ideologically with a more conservative approach, Canada suddenly becomes a model for the US or proof of the value of a particular viewpoint?  That is convenient and selective, not critical, thinking.


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G M
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« Reply #1168 on: January 01, 2012, 03:33:09 PM »

"I am far more interested in the ground truth - and good critical thinking - than odiously repeating any dogma."

Agreed.
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Crafty_Dog
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« Reply #1169 on: January 01, 2012, 06:24:02 PM »

I have just opened a Canada thread.  Lets continue this conversation there.
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Crafty_Dog
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« Reply #1170 on: January 07, 2012, 01:03:42 PM »

All The Emperors Are Naked - by Brian S. Wesbury
 
 
Hyperbole Alert!  Washington’s latest legislation – the one extending the payroll tax cut – may be the worst piece of legislation ever passed.

I told you to get ready for hyperbole.

It clearly isn’t the most damaging piece of legislation ever passed.  There are many others that were worse.  But, this one little piece of legislation is the epitome of political nonsense.

It’s not that Democrats and Republicans can’t work together.  It’s because they are working together.  Getting something done is a religion in DC.  The House passed this bill by unanimous consent.  Not one (1) single member objected.

Many Republicans supported the bill because they thought they would lose votes in upcoming elections if they didn’t support something.  Leading journalists told them so.  Democrats got their payroll tax cut and extended unemployment benefits.  They will call this “stimulus” and take credit for a growing economy.

But the bill, when looked at from an economic point of view makes absolutely no sense.  Each of its five parts exposes a problem with Washington.  Let’s look at them one by one.

The Payroll Tax Cut

So many people have been erased from the income tax rolls that cutting income tax rates does nothing for them.  This leaves payroll taxes as the only populist tool for politicians.

But, a 2% cut in Social Security tax rates does not boost economic output because it is not a cut in the top marginal tax rates.  This means the government must make up any revenue loss by cutting spending (which it never does), borrowing more or raising taxes on someone else.  But, taking money from one group to give to another is a zero sum game, at best. 

In the year since the 2% tax cut was initiated in January 2011, and with the Fed super easy, consumption increased at an annual rate of 4.3% – unchanged from the 4.2% growth rate for all of 2010, the year prior to the cut.  The tax cut did nothing.  Only marginal tax rate cuts will increase growth.

Unemployment Benefits Extension

This is the one that always trips up politicians because no one wants to be on record against it.  Yet, it is clear that two-year unemployment benefits have done little to create jobs.  This is a European-style, Keynesian pump-primer.  It has never worked in Europe, and it won’t work in the US.  The reason unemployment is so high these days is because government is so big.  The US needs to cut spending, not increase it.

Increased Fees on Fannie Mae and Freddie Mac

Every bill Congress passes is supposed to be “paid for” by offsetting cuts in spending, or tax hikes. This explains the two month extensions.  It’s cheaper to fund than a full year.

But even two month cuts need to be paid for, so Congress levied more fees on Fannie Mae and Freddie Mac.  So what do fees on mortgage providers have to do with social security tax cuts?  The answer is: nothing.

Social Security tax cuts should be paid for by cutting future social security benefits.  If Congress was honest about this, Americans would probably not support a tax cut today for lower benefits tomorrow.  It would be called eating our seed-corn.  Unfortunately, we already ate it (we spend every dime Social Security brings in).  So this tax cut just makes our already underfunded plan even more underfunded.  Congress avoids this by putting more fees on home ownership. 

But raising fees on Fannie and Freddie makes no sense.  These companies are already losing money.  Congress is not going to put these funds into escrow to pay for future losses…it is going to spend the money today.  Future taxpayers will still be on the hook for losses.  The fees also perpetuate the myth that Congress knows how to price mortgages by setting fees at the perfect level.  They should be closing down Fannie and Freddie, not making them a bigger part of government.

The “Doc Fix” 

Back in 1997, Congress passed a balanced budget act that was supposed to control spending, partly by holding back the growth rate of Medicare spending.  Medicare payments to doctors were supposed to be held down by a formula.  In the first few years, these reductions were small, but Congress avoided them anyway and by passing a “doc fix” every year, kept kicking the can down the road.

So, today, in order to comply with these cuts (which have never been allowed to happen), doctor reimbursements need to fall by a whopping 27.4%.  If this were to happen, doctors who treat Medicare patients would be up in arms.  No Congress-person wants that – it’s not good for business.

So, Congress used this bill to push off these cuts again.  It also “kicked the can” on eleven other items as well.  Along with the “doc fix,” Congress also made sure cuts to ambulance and mental health add-ons, bone mass measurement, outpatient treatments, and other varied items, did not happen.

This behavior, which everyone in Washington knows happens every year, is about to go into hyper-drive.  President Obama promised roughly $500 billion of future Medicare cuts would help pay for Obamacare.  These future cuts are based on formulas very similar in design to the 1997 bill.  So, why would anyone believe Congress won’t do the same thing all over again?  When faced with the choice of cutting spending or making a constituent mad…Congress always chooses the constituents…and not the ones who pay for it all.

But it gets even worse.  Every year, the Congressional Budget Office (CBO) assumes that Congress will follow through on its 1997 agreement when it scores the budget.  So, the deficit forecast for the next decade assumes a cut in doctor reimbursements that everyone knows won’t happen.  When the budget deficit rises more than expected, everyone in Washington expresses amazement, regret and surprise and then blames it on the private sector and the rich for not paying enough taxes.  Is this a messed up system or what?

The Keystone Pipeline

Republicans used this bill to force President Obama to make a decision within 60 days on the Keystone Pipeline extension.  This project would have already been put in place if private businesses, and private money, were the only deciding factors.  But, politicians in the US are subsidizing unprofitable solar and wind power, while holding-up and penalizing traditional, privately-funded, carbon-based fuel sources.  From an economic point of view the pipeline is a no-brainer, making this the only economically sane part of this bill.  But, it still highlights the broken nature of Washington.

The Worst Bill in History

Any business that ran this way would be out of business.  Government, because it has so much control and power, can avoid the inevitable for a little longer.  But eventually the game comes to an end.  And that’s exactly what is happening in Europe right now.  The Welfare State has come to its logical conclusion – bankruptcy.

Spain, for example, just admitted its deficit is 8.5% of GDP, not the 6% that it was publicizing.  So, it is proposing a package of tax hikes and spending cuts equal to 1.5% of GDP.  This will leave the deficit at 7% of GDP, even though it had promised under new rules to get it down to 4.5%.

Governments seem unwilling to deal with issues that are relatively straight-forward.  It’s not hard to understand.  Spending needs to be paid for by taxes, but taxes undermine the incentives to produce and invest and push business to other countries.  Eventually government spends so much that the economy cannot support it (no matter how much tax rates rise) and bond buyers go on strike.  Many European countries have reached that point.

The United States is not there yet.  However, it is slowly and surely approaching that day if nothing changes.  Politics as usual is not working.  It produces inane bills like the one described above.  Every piece of the bill just passed points to a government that has run out of any self control.

Somehow it is easier to keep spending…and Congress acts like no one will ever figure it out.  It links Social Security tax cuts to mortgage fees, it ignores rules that it previously agreed to and promised to follow through on, it stimulates an economy that does not need to be stimulated.  It continues programs that don’t work.  And the entire time it is doing this it keeps telling us that without government everything would fall apart.

It’s a broken system and the only common theme that runs through it is a considerable effort to get re-elected.  It is becoming more clear by the day, that all the Emperors are naked…there are no more clothes.

The good news is that the electorate is waking up, the European Welfare State is failing and history suggests the US will find a way to correct its course before it’s too late.

Click here for a printable PDF.
 
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Crafty_Dog
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« Reply #1171 on: January 08, 2012, 09:28:32 AM »



It has been two and a half years since the recession ended, but the economy finally had a modestly bullish jobs report on Friday. The private economy created 212,000 net new jobs in December, taking the unemployment rate down a tick to 8.5%. That is hardly a figure to celebrate, but it beats the 9% rate that prevailed as recently as September.

Enlarge Image

Close...Most private occupational areas gained jobs, even manufacturing (23,000) and construction (17,000), and the ranks of the long-term unemployed fell to a still too high 42.5% from 43.1% in November. Government lost jobs (12,000) overall, but that is good news because it means state and local governments are continuing to adjust their employee levels to actual revenues. No more artificially inflated payrolls due to deficit-financed federal "stimulus."

After two years of paltry wage gains, the hourly wage rose by 0.2% in December. The work week also expanded by 0.1 hours, a sign of increased business demand for workers.

 Columnist Mary Anastasia O'Grady explains the latest unemployment stats.
.One continuing sign of employment weakness is the still-low labor force participation rate, which remained unchanged at 64%. That is down from 64.3% a year ago. Another 50,000 workers left the labor force in December, suggesting that many Americans have simply stopped looking for work. As the nearby chart shows, in 2007 when jobs were plentiful the labor force participation rate was 66%. The two percentage point decline is the equivalent of about three million fewer Americans working or looking for work.

President Obama naturally trumpeted December's report as a sign that his economic policies are working, but if that's true it's sure taken a long time. The most important jobs number may be 5.8 million, which is the number of jobs the economy still hasn't recovered from peak employment in 2007. This is still the slowest jobs rebound since the Great Depression.

One issue to watch going forward is the durability of both GDP and the jobs recovery. A year from now, if no policies change, Mr. Obama's tax bombs will explode at once, with the expiration of the Bush tax rates, the expiration of his payroll tax holiday (assuming it is extended next month to a full year), and the rollout of ObamaCare's levies.

As the year progresses, we need to see if businesses will expand or hire new workers into that trillion-dollar tax headwind. If Mr. Obama wants more positive job reports like yesterday's, he should announce that he is calling the tax hike off.

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DougMacG
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« Reply #1172 on: January 08, 2012, 11:12:34 AM »

Good to see Wesbury to get his attention back on the political side of the economic mess, even if it is to criticize Republicans, because that is the only place where it can be solved.  Great to see him explaining the importance of marginal rates over the concept of just money changing hands or not.

Crafty noted previously how weak Speaker Boehner looked on the so-called payroll tax cut issue, amazingly leaving Dems to look like the party of tax cutting.  True.  He caved without ever saying why it was bad policy, why they were apprehensive about allowing the defunding of S.S. to become long term or permanent.  To do so he would have had to become the great defender of the of our largest entitlement, instead of hopefully its reformer.  

The Dems think they pulled a clever one here.  Wesbury nailed it.  With half the taxpayers paying nothing in income tax, this is all their side has left to play with on the tax side.  They turned it into the new minimum wage issue of politics, where all economists know it is bad policy and no one will say so politically.

But that the short term non-gain for Dems has great potential IMO for a long term loss.  They 'succeeded' in defunding Social Security in exchange for a non-existent stimulus and a trivial political gain.  Like Wesbury says, it passed the Republican House unanimously so what did Democrats really gain in bragging rights?  Nothing, just the appearance of being out front on that.  To avoid another showdown, the Republicans have already decided to cave again in 2 months.  The question becomes, what then?  In my view that removes the most powerful argument in defense of S.S. as we know it - that it is paid for and it is your money.  This actually helps open the door for serious future reforms IMO.

There will never be a good time to "raise taxes" on social security so they will never again be able to say that it pays for itself.  If you are tucking 2% less of your income away for retirement in this public fund, at some point you had better think about tucking some away privately for your retirement - a novel idea.  The left will try to raise or eliminate the income ceiling, but at some point that removes the original premise, we were pretending it is your money stored securely by great bureaucrats in a lock box to return back to you in your old age.  

If they 'succeed' in raising the tax on the rich by the same 15.3% at the margin, they a) can't grow the economy, and b) they can't argue that what they turned into a giant redistributive plan is your money stored for you in a lockbox anymore.

It seems to me that sometime in the future only the poor from among America's wealthiest demographic group will be collecting the entitlement formerly known as Social Security.  Defund it and shrink it - that's fine with me.  I don't think Democrats of the 1960s (or 1930s) would think it was Republicans who blinked on this one.
------------------------
Doc Fix and a number of similar tricks in CBO scoring:

Wesbury continued: "...the Congressional Budget Office (CBO) assumes that Congress will follow through on its 1997 agreement when it scores the budget.  So, the deficit forecast for the next decade assumes a cut in doctor reimbursements that everyone knows won’t happen."

Let's see, everyone knows CBO numbers are complete BS yet are quoted and relied on constantly.  When Republicans are done fighting Republicans maybe they can address structural problems that confront us.  Baseline budgeting (often attacked here and hardly anywhere else), static scoring and now this excellent point of Wesbury's - that CBO is scoring the letter of the law instead of what everyone knows is true.  These are things a real leader will need to address, attack and win on, if and when a leader emerges.  

Gingrich already promised a fix 18 years ago: "On the first day of their majority in the House, the Republicans promise to pass eight major reforms...8. guarantee an honest accounting of the Federal Budget by implementing zero base-line budgeting." They either never got it done or the fix did not last.  At least we know he is aware of the problem.  If Romney plans to take a CEO mentality to the job, a real CEO does not put up with basing important decisions on know to be bad numbers.  He certainly has a strong enough economic team to address that.
----------
Wesbury on the pipeline: "From an economic point of view the pipeline is a no-brainer, making this the only economically sane part of this bill."

Hey, give Speaker Boehner some credit here!  smiley

The pipeline, like drilling, like fracking and just legalizing clean energy production in general is more than symbolic in sending a message to the country and to the world that America will be to pursuing economic strength and prosperity going forward.
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ccp
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« Reply #1173 on: January 09, 2012, 07:58:34 AM »

http://www.usnews.com/opinion/mzuckerman/articles/2012/01/06/mort-zuckerman-we-must-reignite-americas-can-do-spirit
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DougMacG
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« Reply #1174 on: January 29, 2012, 08:42:36 PM »

What country is the leader in correcting inequality unfairness??

Greece.
------------
http://www.washingtonpost.com/opinions/angry-about-inequality-dont-blame-the-rich/2012/01/03/gIQA9S2fTQ_story.html?hpid=z2

Angry about inequality? Don’t blame the rich.

By James Q. Wilson, Published: January 26

There is no doubt that incomes are unequal in the United States — far more so than in most European nations. This fact is part of the impulse behind the Occupy Wall Street movement, whose members claim to represent the 99 percent of us against the wealthiest 1 percent. It has also sparked a major debate in the Republican presidential race, where former Massachusetts governor Mitt Romney has come under fire for his tax rates and his career as the head of a private-equity firm.

And economic disparity was the recurring theme of President Obama’s State of the Union address on Tuesday. “We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” the president warned, “or we can restore an economy where everyone gets a fair shot and everyone does their fair share.”

But the mere existence of income inequality tells us little about what, if anything, should be done about it. First, we must answer some key questions. Who constitutes the prosperous and the poor? Why has inequality increased? Does an unequal income distribution deny poor people the chance to buy what they want? And perhaps most important: How do Americans feel about inequality?

To answer these questions, it is not enough to take a snapshot of our incomes; we must instead have a motion picture of them and of how people move in and out of various income groups over time.

The “rich” in America are not a monolithic, unchanging class. A study by Thomas A. Garrett, economist at the Federal Reserve Bank of St. Louis, found that less than half of people in the top 1 percent in 1996 were still there in 2005. Such mobility is hardly surprising: A business school student, for instance, may have little money and high debts, but nine years later he or she could be earning a big Wall Street salary and bonus.

Mobility is not limited to the top-earning households. A study by economists at the Federal Reserve Bank of Minneapolis found that nearly half of the families in the lowest fifth of income earners in 2001 had moved up within six years. Over the same period, more than a third of those in the highest fifth of income-earners had moved down. Certainly, there are people such as Warren Buffett and Bill Gates who are ensconced in the top tier, but far more common are people who are rich for short periods.

And who are the rich? Affluent people, compared with poor ones, tend to have greater education and spouses who work full time. The past three decades have seen significant increases in real earnings for people with advanced degrees. The Bureau of Labor Statistics found that between 1979 and 2010, hourly wages for men and women with at least a college degree rose by 33 percent and 20 percent, respectively, while they fell for all people with less than a high school diploma — by 9 percent for women and 31 percent for men.

Also, households with two earners have seen their incomes rise. This trend is driven in part by women’s increasing workforce participation, which doubled from 1950 to 2005 and which began to place women in well-paid jobs by the early 1980s.

We could reduce income inequality by trying to curtail the financial returns of education and the number of women in the workforce — but who would want to do that?

The real income problem in this country is not a question of who is rich, but rather of who is poor. Among the bottom fifth of income earners, many people, especially men, stay there their whole lives. Low education and unwed motherhood only exacerbate poverty, which is particularly acute among racial minorities. Brookings Institution economist Scott Winshiphas argued that two-thirds of black children in America experience a level of poverty that only 6 percent of white children will ever see, calling it a “national tragedy.”

Making the poor more economically mobile has nothing to do with taxing the rich and everything to do with finding and implementing ways to encourage parental marriage, teach the poor marketable skills and induce them to join the legitimate workforce. It is easy to suppose that raising taxes on the rich would provide more money to help the poor. But the problem facing the poor is not too little money, but too few skills and opportunities to advance themselves.

Income inequality has increased in this country and in practically every European nation in recent decades. The best measure of that change is the Gini index, named after the Italian statistician Corrado Gini, who designed it in 1912. The index values vary between zero, when everyone has exactly the same income, and 1, when one person has all of the income and everybody else has none. In mid-1970s America, the index was 0.316, but it had reached 0.378 by the late 2000s. One of the few nations to see its Gini value fall was Greece, which went from 0.413 in the 1970s to 0.307 in the late 2000s. So Greece seems to be reducing income inequality — but with little to buy, riots in the streets and economic opportunity largely limited to those partaking in corruption, the nation is hardly a model for anyone’s economy.

Poverty in America is certainly a serious problem, but the plight of the poor has been moderated by advances in the economy. Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book “The Poverty of the Poverty Rate,” Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set and a clothes dryer has risen sharply.

In other words, the country has become more prosperous, as measured not by income but by consumption: In constant dollars, consumption by people in the lowest quintile rose by more than 40 percent over the past four decades.

Income as measured by the federal government is not a reliable indicator of well-being, but consumption is. Though poverty is a problem, it has become less of one.

Historically, Americans have had an unusual attitude toward income inequality. In 1985, political scientists Sidney Verba and Gary Orren published a book that compared how liberals in Sweden and in the United States viewed such inequality. By four or five to one, the Swedish liberals were more likely than the American ones to believe that it was important to give workers equal pay. The Swedes were three times more likely than the Americans to favor putting a top limit on incomes. (The Swedes get a lot of what they want: Their Gini index is 0.259, much lower than America’s.)

Sweden has maintained a low Gini index in part by having more progressive tax rates. If Americans wanted to follow the Swedish example, they could. But what is the morally fair way to determine tax rates — other than taxing everyone at the same rate? The case for progressive tax rates is far from settled; just read Kip Hagopian’s recent essay in Policy Review, which makes a powerful argument against progressive taxation because it fails to take into account aptitude and work effort.

American views about inequality have not changed much in the past quarter-century. In their 2009 book “Class War? What Americans Really Think About Economic Inequality,” political scientists Benjamin Page and Lawrence Jacobs report that big majorities, including poor people, agree that “it is ‘still possible’ to start out poor in this country, work hard, and become rich,” and reject the view that it is the government’s job to narrow the income gap. More recently, a December Gallup poll showed that 52 percent of Americans say inequality is “an acceptable part” of the nation’s economic system, compared with 45 percent who deemed it a “problem that needs to be fixed.” Similarly, 82 percent said economic growth is “extremely important” or “very important,” compared with 46 percent saying that reducing the gap between rich and poor is extremely or very important.

Suppose we tax the rich more heavily — who would get the money, and for what goals?

Reducing poverty, rather than inequality, is also a difficult task, but at least the end is clearer. One new strategy for helping the poor improve their condition is known as the “social impact bond,” which is being tested in Britain and has been endorsed by the Obama administration. Under this approach, private investors, including foundations, put up money to pay for a program or initiative to help low-income people get jobs, stay out of prison or remain in school, for example. A government agency evaluates the results. If the program is succeeding, the agency reimburses the investors; if not, they get no government money.

As Harvard economist Jeffrey Liebman has pointed out, for this system to work there must be careful measures of success and a reasonable chance for investors to make a profit. Massachusetts is ready to try such an effort. It may not be easy for the social impact bond model to work consistently, but it offers one big benefit: Instead of carping about who is rich, we would be trying to help people who are poor.
----
James Q. Wilson, a former professor at Harvard University and UCLA, is the Ronald Reagan professor of public policy at Pepperdine University.
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G M
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« Reply #1175 on: February 04, 2012, 11:26:22 AM »

http://www.zerohedge.com/news/implied-unemployment-rate-rises-115-spread-propaganda-number-surges-30-year-high

Implied Unemployment Rate Rises To 11.5%, Spread To Propaganda Number Surges To 30 Year High
Submitted by Tyler Durden on 02/03/2012 09:35 -0500

BLS Bureau of Labor Statistics Real Unemployment Rate Unemployment


Sick of the BLS propaganda? Then do the following calculation with us: using BLS data, the US civilian non-institutional population was 242,269 in January, an increase of 1.7 million month over month: apply the long-term average labor force participation rate of 65.8% to this number (because as chart 2 below shows, people are not retiring as the popular propaganda goes: in fact labor participation in those aged 55 and over has been soaring as more and more old people have to work overtime, forget retiring), and you get 159.4 million: that is what the real labor force should be. The BLS reported one? 154.4 million: a tiny 5 million difference. Then add these people who the BLS is purposefully ignoring yet who most certainly are in dire need of labor and/or a job to the 12.758 million reported unemployed by the BLS and you get 17.776 million in real unemployed workers. What does this mean? That using just the BLS denominator in calculating the unemployed rate of 154.4 million, the real unemployment rate actually rose in January to 11.5%. Compare that with the BLS reported decline from 8.5% to 8.3%. It also means that the spread between the reported and implied unemployment rate just soared to a fresh 30 year high of 3.2%. And that is how with a calculator and just one minute of math, one strips away countless hours of BLS propaganda.

Difference between Reported and Implied Unemployment Rate

Click on the link to see the charts
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JDN
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« Reply #1176 on: February 04, 2012, 11:55:29 AM »

Well it seems the financial markets are impressed.  If this keeps up, I guess we will have Obama for 4 more years    shocked

Stocks were pushed up Friday by new signs that the U.S. economy -- and the employment situation -- are on the mend. The day began with one of the most promising employment reports  in a long time, showing that the economy added 243,000 jobs, or 100,000 more than economists were expecting. That was enough to bring the unemployment rate down to 8.3% from 8.5%.

A short while later, news hit that the service sector was growing faster than expected, according to a closely watched index from the Institute for Supply Management.

Dow finishes at highest since 2008, Nasdaq at highest since 2000

http://www.latimes.com/business/money/la-fi-mo-good-markets-20120203,0,6751385.story
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DougMacG
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« Reply #1177 on: February 04, 2012, 12:21:11 PM »

"Implied Unemployment Rate Rises To 11.5%, Spread To Propaganda Number Surges To 30 Year High"

That number I think matches more closely with what people are experiencing.  Remember that when no one seems to be hiring, even many of the fully employed have lost the economic freedom to quit work that is unpleasant or unchallenging/unfulfilling and make a good career move to something more rewarding.

If you are willing and able and not holding a job or earning a full time income, then you are unemployed at some level no matter where you have applied or how long that has been the case.  It is very difficult to measure accurately.  Passing around resumes or turning in applications to companies either not hiring or not hiring you as an exercise to get unemployment compensation is not the only measure or best measure of economic health or sickness.

If Republicans wanted to run up the bad statistics (with this same real economy) on Pres. Obama they should have opened up and extended unemployment benefits for all at least through Nov 6 2012.  Then you would not see the exodus from the labor force.

Economic growth is a better indicator IMO of economic health than unemployment.  (Growth less than 3.1% is considered moving backwards and we are.)  People also leave the employed and unemployed rolls to become entrepreneurs.  How much you earn is more important than whether you are securely working for someone else.  Our entrepreneurial-based economy has the PAUSE button stuck on.

If you are unemployed right now, remember that the new tax on the so-called wealthy (someone other than you) is causing your next potential employer to re-consider whether to expand his or her business.  Just having the idea seriously on the table causes uncertainty, inaction and delays with business expansions. The us vs. them game is really just us trying to work in a fully integrated economy.  You can't take the profits or take the incentives out of business and still grow jobs and grow worker paychecks.  Employers will pay you more when the economy is loaded with opportunities for you to leave and be more valuable elsewhere. Insanity is to not learn that after all we've been through.
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DougMacG
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« Reply #1178 on: February 04, 2012, 12:43:41 PM »

"Well it seems the financial markets are impressed."

Nothing boosts productivity and profits in a stalled economy like existing companies (DOW, S&P etc) employing fewer workers. 

If the LA Times is reporting actual job lasses as adjusted job gains because of BLS scoring, that sounds more like a media issue (deplorable lack of curiosity to go deeper than a flawed government report) and a problem with another government agency program.

In better economic news, fewer people are buying that line - the revenues and subscription base of the LA Times is still declining http://articles.latimes.com/2011/nov/02/business/la-fi-newspaper-circulation-20111102 while the WSJ is now number one in the nation.   smiley
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G M
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« Reply #1179 on: February 04, 2012, 12:58:14 PM »

"Well it seems the financial markets are impressed."

Yes, Obozo is going to Solyndra his way to re-election. How's California's green economy going these days?
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JDN
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« Reply #1180 on: February 05, 2012, 09:54:17 AM »

Doug, why criticize the LA Times?  Nothing changed; the WSJ was also number one in the nation 10 years ago!  Your point?   huh 
Of course the WSJ is number one; it has a national/international circulation.....
But my point had nothing to do with the LA Times.

Most would consider the stock market to be a leading indicator....

Notwithstanding or ignoring your own personal analysis   smiley  the market today is made up of mostly very sophisticated large analytical investors.
I'm sure they do not have a "deplorable lack of curiosity to go deeper than a flawed government report"   shocked
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Crafty_Dog
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« Reply #1181 on: February 05, 2012, 03:46:08 PM »

JDN raises an interesting theoretical question of import here. In that we are talking about the behavior of the stock market, lets take it to the Stock Market thread.
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DougMacG
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« Reply #1182 on: February 07, 2012, 09:55:23 AM »

This could go also in Presidential 2012 because Thomas Sowell launches into this as a rip on candidate Romney for an escalating minimum wage statement he made.  Republicans gave up this fight because fighting against minimum wage laws doesn't poll well.  Butur economy and our society suffers and indeing it to inflation makes the damage permanent.  The question should not be how much to pay someone before they develop any skills or positive work habits.  The question should be: who should decide?  The answer is employees and employers negotiating in a free markets, not government, state or federal.

http://www.realclearpolitics.com/articles/2012/02/07/a_defining_moment_113044.html

February 7, 2012
A Defining Moment
By Thomas Sowell

Governor Mitt Romney's statement about not worrying about the poor has been treated as a gaffe in much of the media, and those in the Republican establishment who have been rushing toward endorsing his coronation as the GOP's nominee for president -- with 90 percent of the delegates still not yet chosen -- have been trying to sweep his statement under the rug.

But Romney's statement about not worrying about the poor -- because they "have a very ample safety net" -- was followed by a statement that was not just a slip of the tongue, and should be a defining moment in telling us about this man's qualifications as a conservative and, more important, as a potential President of the United States.

Mitt Romney has come out in support of indexing the minimum wage law, to have it rise automatically to keep pace with inflation. To many people, that would seem like a small thing that can be left for economists or statisticians to deal with.

But to people who call themselves conservatives, and aspire to public office, there is no excuse for not being aware of what a major social disaster the minimum wage law has been for the young, the poor and especially for young and poor blacks.

It is not written in the stars that young black males must have astronomical rates of unemployment. It is written implicitly in the minimum wage laws.

We have gotten so used to seeing unemployment rates of 30 or 40 percent for black teenage males that it might come as a shock to many people to learn that the unemployment rate for sixteen- and seventeen-year-old black males was just under 10 percent back in 1948. Moreover, it was slightly lower than the unemployment rate for white males of the same age.

How could this be?

The economic reason is quite plain. The inflation of the 1940s had pushed money wages for even unskilled, entry-level labor above the level specified in the minimum wage law passed ten years earlier. In other words, there was in practical effect no national minimum wage law in the late 1940s.

My first full-time job, as a black teenage high-school dropout in 1946, was as a lowly messenger delivering telegrams. But my starting pay was more than 50 percent above the level specified in the Fair Labor Standards Act of 1938.

Liberals were of course appalled that the federal minimum wage law had lagged so far behind inflation -- and, in 1950, they began a series of escalations of the minimum wage level over the years.

It was in the wake of these escalations that black teenage unemployment rose to levels that were three or four times the level in 1948. Even in the most prosperous years of later times, the unemployment rate for black teenage males was some multiple of what it was even in the recession year of 1949. And now it was often double the unemployment rate for white males of the same ages.

This was not the first or the last time that liberals did something that made them feel good about themselves, while leaving havoc in their wake, especially among the poor whom they were supposedly helping.

For those for whom "racism" is the explanation of all racial differences, let me assure them, from personal experience, that there was not less racism in the 1940s.

For those who want to check out the statistics -- and I hope that would include Mitt Romney -- they can be found detailed on pages 42 to 45 of "Race and Economics" by Walter Williams.

Nor are such consequences of minimum wage laws peculiar to blacks or to the United States. In Western European countries whose social policies liberals consider more "advanced" than our own, including more generous minimum wage laws and other employer-mandated benefits, it has been common in even prosperous years for unemployment rates among young people to be 20 percent or higher.

The economic reason is not complicated. When you set minimum wage levels higher than many inexperienced young people are worth, they don't get hired. It is not rocket science.

Milton Friedman explained all this, half a century ago, in his popular little book for non-economists, "Capitalism and Freedom." So have many other people. If a presidential candidate who calls himself "conservative" has still not heard of these facts, that simply shows that you can call yourself anything you want to.
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DougMacG
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« Reply #1183 on: February 07, 2012, 10:08:37 AM »

My first time putting Krugman in Political Economics instead of Cognitive Dissonance because he doesn't in this column get to the part of what he would do about it.  (More of the same - much more.)

http://www.nytimes.com/2012/02/06/opinion/krugman-things-are-not-ok.html?_r=1

Op-Ed Columnist
Things Are Not O.K.
By PAUL KRUGMAN
Published: February 5, 2012

In a better world — specifically, a world with a better policy elite — a good jobs report would be cause for unalloyed celebration. In the world we actually inhabit, however, every silver lining comes with a cloud. Friday’s report was, in fact, much better than expected, and has made many people, myself included, more optimistic. But there’s a real danger that this optimism will be self-defeating, because it will encourage and empower the purge-and-liquidate crowd.

So, about that jobs report: it was genuinely good, certainly compared with the dreariness that has become the norm. Notably, for once falling unemployment was the real thing, reflecting growing availability of jobs rather than workers dropping out of the labor force, and hence out of the unemployment measure.

Furthermore, it’s not hard to see how this recovery could become self-sustaining. In particular, at this point America is seriously under-housed by historical standards, because we’ve built very few houses in the six years since the housing bubble popped. The main thing standing in the way of a housing bounce-back is a sharp fall in household formation — econospeak for lots of young adults living with their parents because they can’t afford to move out. Let enough Americans find jobs and get homes of their own, and housing, which got us into this slump, could start to power us out.

That said, our economy remains deeply depressed. As the Economic Policy Institute points out, we started 2012 with fewer workers employed than in January 2001 — zero growth after 11 years, even as the population, and therefore the number of jobs we needed, grew steadily. The institute estimates that even at January’s pace of job creation it would take us until 2019 to return to full employment.

And we should never forget that the persistence of high unemployment inflicts enormous, continuing damage on our economy and our society, even if the unemployment rate is gradually declining. Bear in mind, in particular, the fact that long-term unemployment — the percentage of workers who have been out of work for six months or more — remains at levels not seen since the Great Depression. And each month that this goes on means more Americans permanently alienated from the work force, more families exhausting their savings, and, not least, more of our fellow citizens losing hope.

So this encouraging employment report shouldn’t lead to any slackening in efforts to promote recovery. Full employment is still a distant dream — and that’s unacceptable. Policy makers should be doing everything they can to get us back to full employment as soon as possible.

Unfortunately, that’s not the way many people with influence on policy see it.

Very early in this slump — basically, as soon as the threat of complete financial collapse began to recede — a significant number of people within the policy community began demanding an early end to efforts to support the economy. Some of their demands focused on the fiscal side, with calls for immediate austerity despite low borrowing costs and high unemployment. But there have also been repeated demands that the Fed and its counterparts abroad tighten money and raise interest rates.

What’s the reasoning behind those demands? Well, it keeps changing. Sometimes it’s about the alleged risk of inflation: every uptick in consumer prices has been met with calls for tighter money now now now. And the inflation hawks at the Fed and elsewhere seem undeterred either by the way the predicted explosion of inflation keeps not happening, or by the disastrous results last April when the European Central Bank actually did raise rates, helping to set off the current European crisis.

But there’s also a sort of freestanding opposition to low interest rates, a sense that there’s something wrong with cheap money and easy credit even in a desperately weak economy. I think of this as the urge to purge, after Andrew Mellon, Herbert Hoover’s Treasury secretary, who urged him to let liquidation run its course, to “purge the rottenness” that he believed afflicted America.

And every time we get a bit of good news, the purge-and-liquidate types pop up, saying that it’s time to stop focusing on job creation.

Sure enough, no sooner were the new numbers out than James Bullard, the president of the St. Louis Fed, declared that the new numbers make further Fed action to promote growth unnecessary. And the sad truth is that the good jobs numbers have definitely made it less likely that the Fed will take the expansionary action it should.

So here’s what needs to be said about the latest numbers: yes, we’re doing a bit better, but no, things are not O.K. — not remotely O.K. This is still a terrible economy, and policy makers should be doing much more than they are to make it better.
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« Reply #1184 on: February 07, 2012, 10:38:29 PM »

http://www.nationalreview.com/exchequer/290140/armageddon-strip-mall

Armageddon at the Strip Mall


By Kevin D. Williamson

February 4, 2012 4:00 A.M.


Remember 2007? Glory days, right? Everything was booming, and nothing was booming quite as much as real estate — especially commercial real estate. Malls, hotels, warehouses, industrial parks: Everything was being built, and everything was being financed on ridiculously generous terms. Remember interest-only loans? Good times.
 
But commercial real estate is different from residential in one important way: Your standard residential mortgage goes 20 to 30 years. Your standard commercial loan goes for five years, at the end of which you either make a big balloon payment (what it is that balloons remind me of?) or you refinance, the idea being that five years is long enough to get your project built or developed, to secure tenants and leases, get your cash flow flowing, etc. Five years: Seems like it was only yesterday. By my always-suspect English-major math, that means that a whole bunch of commercial mortgages written at that poisonous sweet spot when prices were highest but lending standards were lowest are coming due . . . oh, any minute now.
 
In New York City alone, there’s about $70 billion worth of commercial mortgages — some of which have been sold off as mortgage-backed securities, naturally — coming due this year. The national total is more than $150 billion, or a bit more than 1 percent of U.S. GDP. That’s going to be a little awkward: The value of U.S. commercial properties has declined by an average of 45.7 percent since their all-time high in 2007, according to Real Capital Analytics. Those 2007 vintage loans weren’t exactly bulletproof: Typical terms included a 20 percent down payment and a five-year payment schedule that required little more than interest payments. An $80 million mortgage on a $100 million property is not so bad, but an $80 million mortgage on what is now a $60 million property is a problem. More than half of the 2007-vintage loans are expected to have trouble refinancing, and maybe well more than half.
 
This is true even for borrowers who have never missed a payment. Banks are required to take into account a number of factors when rating commercial mortgages. One of the most important is the loan-to-value ratio, which has a lot of borrowers over a particularly uncomfortable barrel: They may have the cash to make their payments, and they may have the cash flow to continue making payments on a refinanced loan, but their properties still are worth less than their mortgages, so nobody wants to refinance. And those are the lucky ones: Just as those loans were mostly for five years, most commercial leases are for about the same length of time. With retail and office-space rentals down, lots of commercial borrowers are sitting on largely vacant properties that are not producing much in the way of cash flow. Among the more high-profile cases, the WTC 3 tower at the World Trade Center still has not located an anchor tenant, which could put the much of the project on ice. Thousands of strip malls across the fruited plains have empty storefronts, and thousands of office buildings have floor upon vacant floor.
 
Standard & Poor’s advises: “One-third of maturing loans are for office properties, for which five-year lease terms are fairly common — and if tenants don’t renew these leases, securing new, long-term lease commitments may be more difficult in the current environment. Those leases [were] signed in 2007, at peak rents will likely reset to lower levels as five-year leases roll.” S&P’s bottom line: “50%-60% of the 2007 vintage five-year-term loans maturing next year may fail to refinance, and retail loans are at the greatest risk.”
 
Translation: Armageddon at the strip mall.
 
And it’s not just a problem for New York City and other big, coastal cities. Richmond, Va., has it worse than Manhattan, Washington, or Los Angeles, according to the local Times-Dispatch, which reports that a dozen large commercial properties have gone into foreclosure recently and that 12 percent of the commercial properties in the Richmond-Norfolk market are “distressed.” In Bergen County, N.J., commercial foreclosures are up 7 percent this year over last year. In the first year of the recession, there were 373 foreclosure actions filed in Bergen County, while in 2011 there were 1,586. Commercial foreclosures are up 10 percent for the state as a whole.
 
In hard-hit Phoenix, about half of the commercial mortgages backing securities are at risk of default, and a couple of hundred, mostly strip malls and other retail, office buildings, and apartments, already are in default.
 
Taking a look at the commercial MBS (CMBS) market, Standard & Poor’s issued this advice: “Buckle Up.”
 
Trepp, a CMBS-analysis firm, in its most recent report (data as of October 2011) finds that the delinquency rate for multifamily-property mortgages is 16.73 percent; for hotels, 14.12 percent and rising; for offices, 8.95 percent and rising; for industrial properties, 11.59 percent and rising; and for retail, a steady 7.61 percent. Trepp managing director Matt Anderson does not sound like a ray of sunshine: “Overall, we do not expect 2012 to be a repeat of 2008, but there will be more disappointments than pleasant surprises in the New Year. The banking sector has not yet returned to ‘normal’ despite two years of earnings growth. With increased regulation and the temptation for banks to take additional risks in order to preserve margins, 2012 should be a very interesting year.”
 
Not as bad as 2008 — is there a better example of damning with faint praise?
 
Trepp gets to the real concern here, which is that these mortgages and mortgage-backed securities are sitting on the balance sheets of a bunch of still-wobbly banks. How wobbly? About 100 banks went under last year, and about 250 are expected to go under this year. Trepp finds that, of the banks that went toes-up in 2011, bad commercial real estate accounted for two-thirds of their failing loans.
 
This is a textbook case for the Austrian business-cycle theory: Artificially low interest rates and loose money produce overinvestment, by both bankers and builders, in a bubble — this time, offices, apartment buildings, and retail space — that can’t be sustained once the artificial stimulation comes to an end, as it must. In this case, that malinvestment has to be worked out at two levels: At the financial level, among the lenders and borrowers, but also at the physical level: There’s going to be a lot of dark storefronts out there, with serious long-term consequences for nearby neighbors and for local real-estate markets: Foreclosures will put more property onto the market, driving down rents and subsequently making existing loans less tenable as the cashflow of commercial properties is diminished. They called the Depression-era tent cities “Hoovervilles.” The next time you see a mile of half-abandoned strip malls, think “Obamaville.”
 
Not as bad as 2008? Probably not — and let’s hope it is not even close. But there’s a $3 trillion commercial-mortgage market lurking out there, and a lot of CMBS investors — banks and insurance companies in particular — that Washington thinks are “too big to fail,” a problem we persistently refuse to address.
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« Reply #1185 on: February 07, 2012, 10:45:19 PM »

Good thing he scuttled the Keystone pipeline!

http://hotair.com/archives/2012/02/07/great-news-another-green-tech-stimulus-recipient-job-flop/

Great news: Another green-tech stimulus recipient job flop
 

posted at 11:35 am on February 7, 2012 by Ed Morrissey
 





Last we heard from the Fisker Karma, the electric vehicle in which US taxpayers sunk $193 million so far, the loans were paying off by creating jobs … in Finland.  As it turns out, even that report was too optimistic.  With Fisker having burned through about 40% of the stimulus funds guaranteed by the Obama administration, they have suddenly run out of money — and will start ending jobs in the US rather than create them:
 

Fisker Automotive, the electric car company that received a half-billion dollars in Energy Department loan guarantees, announced layoffs at its Delaware production facility Monday.
 
The Energy Department agreed to loans totaling $528 million for two Fisker electric car projects: a luxury model — the$103,000 Karma which is on sale now — and a more affordable sedan, the Nina. …
 
“We have temporarily delayed work at the plant based on ongoing discussions with the DOE regarding funding for the Project Nina program. As a result, we have laid-off 26 people,” the company said in a statement Monday.
 
It’s never a good sign when a firm has to plead for more time by explaining that it’s searching for more private equity investment to get production rolling:
 

Fisker said it continues to pursue alternative funding sources. “We have successfully raised an additional $260 million of equity in late 2011, bringing the total amount of private equity financing to more than $850 million,” the company said.
 
The $193 million Fisker has received was for the production of its Karma line.  That’s the model whose production got moved to Finland rather than the US, where the money was supposed to create jobs.  The Karma is available for purchase, but it’s a model only affordable to the so-called 1%, unless one of the 99% plan to live in it instead of a house or condominium. Even the supposedly “more affordable” Nina would be out of range for most working Americans.  Last October, Autoblog pegged the MSRP for the Nina at $45,000, more than the Chevy Volt, which isn’t exactly selling like hotcakes at the subsidized MSRP of $32,000.  For the same money, a buyer could drive off the lot in a BMW 3 series car, one that won’t require several thousand dollars in new batteries in its first five to eight years on top of the purchase price.
 
Let’s assume that the Nina sells as well as the Volt, if Fisker ever starts production on it.  Their first year would have 7700 units sold for which Fisker would have received approximately $336 million in loans (the original $529 million less the $193 million for the Karma).  That comes to $43,636 in subsidies per car, or almost the entire estimated MSRP of the Nina, making the actual cost closer to $90,000.  It’s just that the taxpayer would have bought half of the car.
 
When Joe Biden visited the Delaware plant to promote the stimulus grant, he promised union workers about 2,000 jobs on the basis of the half-billion-dollar commitment to Fisker for the Karma and the Nina.  Right now the total from $193 million is -26 jobs, and another green-tech firm talking about the need to find new capital after missing its targets for the green-tech loans.
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« Reply #1186 on: February 08, 2012, 09:54:01 AM »


http://chronicle.com/article/Bankruptcy-Lawyers-Warn-of/130696/

February 7, 2012

Bankruptcy Lawyers Warn of Student-Loan 'Debt Bomb' as Client Caseloads Rise


By Kelly Field

More struggling borrowers are seeking relief from their student loans, according to a survey by the National Association of Consumer Bankruptcy Attorneys.

In the survey of 860 bankruptcy lawyers, four out of five respondents reported a "significant" or "somewhat significant" increase in potential clients with student-loan debt; nearly two out of five said they had seen their potential student-loan-client caseloads jump by 25 to 50 percent in the past three or four years, and about a quarter had seen caseloads jump by more than 50 percent.

Most of those borrowers won't have their student-loan debt forgiven. Under federal law, it is almost impossible to discharge student loans through bankruptcy.

The president of the association, William E. Brewer, Jr., said the results of the survey suggest that student loans "could very well be the next debt bomb for the U.S. economy."
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« Reply #1187 on: February 09, 2012, 12:18:37 PM »

I guess teeming hordes of unemployed Americans have a smaller carbon footprint.


http://hotair.com/archives/2012/02/09/fantastic-china-canada-reach-quick-deals-on-oil-uranium/

Fantastic. China, Canada reach quick deals on oil, uranium
 

posted at 11:35 am on February 9, 2012 by Jazz Shaw
 





Last month we discussed the rather alarming news that Canadian Prime Minister Stephen Harper was planning a trip to China to discuss possible natural resources deals with the economic superpower. It seemed no coincidence that the trip was announced close on the heels of Barack Obama’s decision to kick the can down the road on the Keystone XL pipeline yet again. But at that time, I retained some hope that perhaps this was just a warning siren to Obama which would remind him that Canada had plenty of other options should we decide not to do business with them.
 
Apparently Harper hasn’t cared much for what he’s been hearing out of Washington and found a very willing ear across the Pacific because it seems that some deals have been struck already.
 

China and Canada declared Thursday that bilateral relations have reached “a new level” following a series of multibillion-dollar trade and business agreements to ship additional Canadian petroleum, uranium and other products to the Asian superpower.
 
Prime Minister Stephen Harper and the Chinese leadership said Thursday the economic co-operation agreements — and billions of dollars in new private-sector deals — signed by the two countries over the past few days are unprecedented and will open the door to additional trade and investment.
 
Harper announced Thursday, following meetings with Chinese President Hu Jintao and Vice-Premier Li Keqiang, that the countries have struck an agreement that will allow Canadian uranium companies to “substantially increase exports to China.”
 
“We expect to see similar success stories in Canadian energy exports to China, once infrastructure is in place.”
 
Harper has said building pipelines to the West Coast — such as the proposed Northern Gateway oilsands pipeline and a separate one for liquefied natural gas — is a national priority as Canada looks to ship its vast resources to Asia.
 
This just gets better and better, doesn’t it? Not only do we have to keep an eye on the Canadians building a shorter pipeline to their western coast to ship all of their oil overseas, but now they’re going to aggressively up the ante on delivering uranium to the Chinese. Oh, I know… you probably think I’m being an old worry wort, right? I mean, China would only use the fuel for peaceful, energy production purposes and would never “lose track” of any of it, right?
 
Yet again we see that elections matter, and decisions coming from 1600 Pennsylvania Ave. can have both immediate and long term effects not only here at home, but across the oceans as well. Harper’s deals wont be finalized until the Canadian legislature approves them, but they would be foolish indeed to turn it down with no assurances of a market in the U.S. There was never any doubt that Canada would pursue their own best economic and national interests and find a buyer for their resources. It was only a question of who would strike the right deal. And – again – I do not place any blame on Harper for this. He has to look out for Canada’s interests first, not ours. The fault here lies with the White House for playing politics with such a critical issue.
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« Reply #1188 on: February 09, 2012, 02:43:15 PM »

Would you please post this in the energy thread?
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« Reply #1189 on: February 12, 2012, 05:48:22 AM »

http://formerspook.blogspot.com/2012/02/incredible-shrinking-workforce.html

Friday, February 03, 2012
The Incredible, Shrinking Workforce

It's a historical fact: since World War II, no American President has ever been re-elected with an unemployment rate above eight percent.


So, how does Barack Obama (and his bureaucratic helpers) plan to push that number down to an "electable" range?


Easy, just shrink the work force.


If you don't believe us, look at today's unemployment numbers from the Bureau of Labor Statistics. The gang over at Zerohedge.com was the first to warn us; earlier this week, they predicted there would be something fishy about today's figures. And sure enough, they were right--sort of. Zerohedge predicted the BLS would sneak in a much higher total for the number of jobs lost last year. Instead, the feds went one better--they "down-sized" the work force by a staggering number:


A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by anunprecedented record 1.2 million. No, that's not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.


Of course, the stat grabbing most of the headlines is the monthly unemployment rate, which dropped to 8.3%, the lowest level in more than three years. But it wasn't all champagne and roses; there are signs the recovery is slowing in places in Germany and France (where unemployment surged last month); the Euro debt crisis is far from resolved (ditto for the U.S.) and there are concerns about a potential conflict with Iran. And did we mention that $4 a gallon gasoline is just around the corner--even if there isn't a conflict in the Gulf? Any--or all--of those factors could deflate whatever "recovery" is underway in the U.S.

But give the Obama team credit. When you need to lower the unemployment rate, just crush the labor force participation rate, even if the numbers make no sense. After all, this is an election year.
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« Reply #1190 on: February 20, 2012, 03:45:50 PM »



http://www.youtube.com/watch?v=HlTxGHn4sH4

5.00 gas! Thanks Obozo!
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JDN
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« Reply #1191 on: February 20, 2012, 09:32:18 PM »

5.00 gas! Thanks Obozo!

A better comment would be "Thanks Iran".  But if we backed off and didn't oppose Iran, ignored Israel's need, maybe we could have $3.00 gas....  Is that what you are suggesting?   smiley

Oh yeah, stocks being up is bad for oil prices too; then again, those of us who own some stocks or others among us whose union pension fund owns some stock are ecstatic.  The market keeps hitting new highs.

http://money.cnn.com/2012/02/20/markets/oil_gas_iran/index.htm?hpt=hp_c1

I think you would blame Obama for Sun Spots if you could....

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G M
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« Reply #1192 on: February 20, 2012, 09:46:26 PM »

Iran? Yeah, we could buy oil from Canada, but Obozo killed the Keystone pipeline. We could drill our own oil, but Obozo doesn't want that either.

Glad you could try to sate your anti-semetic streak by blaming Israel though.
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« Reply #1193 on: February 20, 2012, 09:55:54 PM »


Bob Janjuah: ‘Markets are so rigged by policymakers that I have no meaningful insights to offer’
 

Published: 8:42 AM 02/20/2012 | Updated: 9:21 AM 02/20/2012


In this Oct. 4, 2011 photo, traders Stephen Guilfoyle, left, and Richard Deviccaro, work on the floor of the New York Stock Exchange. Stocks in Europe recouped some recent losses on Wednesday, Oct. 5, 2011, on hopes that European policymakers were thrashing out a plan to shore up the banking sector, which has been damaged by fears of a Greek debt default. (AP Photo/Richard Drew)


A note from Nomura’s Bob Janjuah via Zerohedge.
 
The notorious bear says we’re in a bubble, but the markets are too insane to recommend anything other than gold, non-financial high quality corporate credit and blue-chip big cap non-financial global equities.
 
Bob’s World: Monetary Anarchy
 
Since my last note from early January I have spent the last few weeks assessing data and price action, as well as spending a lot of time talking to clients and trying to analyse the words and deeds of policymakers. In no particular order, my takeaways are as follows:
 
1 – Greece (and the whole eurozone story) continues to lurch about, seemingly perpetually, from Farce to Tragedy. Policy seems to be focused on protecting and preserving vested interests, with little consideration given to the dreadful conditions the people of Greece and other “peripherals? are being forced to live with. However, it seems that eurozone leaders may be about to pour even more taxpayer money down into the black hole that is Greece, primarily to help the banks in Europe, at the expense of perhaps a decade of suffering by the Greek populace. For my part, I am now consigning the Greece/Peripherals/Eurozone story to the box marked “self-serving political debacle? and from here on in I will simplify Europe as follows: Until, and unless, Germany signs up to full fiscal union, a eurozone breakup is likely. And depending on how long we can continue to “kick the can? down the road in order to protect the eurozone banks, the eurozone will be consigned to an extended period of weak growth, which in turn means ever decreasing debt sustainability. Ultimately this means that the end game will simply be more devastating for us all the longer we are forced to wait. Investors should be fully aware that “home? bias amongst real money investors is now “off the charts?. This is not a good development for the eurozone, unless of course our leaders are preparing for break up, or at least considering it as a viable option.
 
2 – I am staggered at how easily the concepts of Democracy and the Rule of Law – two of the pillars of the modern world – have been brushed aside in the interests of political expediency. This is not just a eurozone phenomenon but of course the removal of elected governments and the instalment of “insider? technocrats who simply serve the interests of the elite has become a specialisation in Europe. Many will think this kind of development is not a big deal and is instead may be what is needed. Personally I am absolutely certain that the kind of totalitarianism being pushed on us by our leaders will – if allowed to persist and fester – end with consequences which are way beyond anything the printing presses of our central banks could ever hope to contain. Communism failed badly. Why then are we arguably trying to resurrect a version of it, particularly in Europe? Are the banks so powerful that we are all beholden to them and the biggest nonsense of all – that defaults should never happen (unless said defaults are trivial or largely meaningless)?
 
3 – More broadly, with Mr Draghi now in situ, it is clear that I misread and misunderstood two things. First, I am simply stunned that our  policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being “told? to double up on these same policy decisions. The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people. Well now, if you listen to the latest from Bernanke and Draghi, it seems that the only solution they can offer up  is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again “greedy? enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now “richer?. When – as they do by definition – these bubbles burst, those who have been suckered in will realise that their “wealth? is instead an illusion, which in turn will be replaced by default risk.
 

Secondly, I have clearly underestimated the ‘market’s’ willingness, nay desperation, to go along with this ultimately ruinous policy path. Personally, I think this is extremely worrying – the number of clients who tell me that they know they are being forced into playing a game that will end in disaster, but who feel they have to play along and who hope they will get out before it turns, is a depressingly familiar old tale. Some such folks hang onto the idea that Draghi/LTRO changed the asymmetry of risk from deeply negative to positive. Yet even these folks know that printing more money/more liquidity/more debt/more leverage is not a viable solution to our ills, and in fact will mean true supply side reform and the search for true competiveness and sustainable growth will be further cast aside, as the focus will be on the “easy gains? to be made in markets.
 
4 – Assuming that we are in yet another liquidity fuelled rally courtesy of Bernanke and Draghi, then there are some key things to remember. First, such rallies can last days, weeks, months, perhaps we could even extend into 2013. And – to give a proxy guide – the S&P could end up in the high 1500s again if this current binge lasts into 2013. The problem with such liquidity fuelled set-ups is that they can last longer and get bigger than any reasonable logic would dictate. The issue here is not what central bankers say – it now seems clear that Bernanke and Draghi will say whatever it takes to keep the market supplied with ample liquidity – but what they can do. In this respect one either believes that central bankers can do whatever they like whenever they like, or one believes there are limits. I think there are limits to what Bernanke and Draghi can do, and once we hit those limits these bubbles will burst, with increasingly greater consequences the longer we are forced to wait. Do I know when we may hit these limits? I hope that it is sooner rather than later, but I have no real conviction.
 
Secondly, when looking for where the bubbles may be, realise this: in this current cycle, where central bank balance sheets are at the core, the bubble is everywhere – in stocks, in bonds, in growth expectation, in credit spreads, in currencies, in commodity prices, in most real asset prices – you name it! This is why I think that this current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market.


Third, when this bubble bursts, I don’t think there is an easy way out. Who will be the bail-out provider? We already have extraordinarily weak and fragile government balance sheets, ditto banking balance sheets and consumer balance sheets. The big cap corporate balance sheet is sound, but it already worries about how bad the real economy hit will be when the next bubble bursts. As such, the corporate sector – which has a huge degree of “control? over the political classes – will keeps its powder dry until asset prices fall to clearing levels. When this happens they will be the biggest buyer of truly cheap assets in town, but not before then. The really dangerous thing about this next bubble is that it will likely ruin current central bank credibility, as their balance sheet expansion, accumulating ever more “toxic? assets, is at the centre of the current cycle. As a result, the central bank decision-making function is now (increasingly) deeply compromised, if not utterly at odds with its own raison d’être. This of course means that if/when the current cycle implodes, central banks which have seen explosive balance sheet growth will add to the problems, rather than being able to act as credible lenders of last resort. A resulting consequence is that we will, at that point, usher in a new era of central banking and policy settings, where the key will be to regain a semblance of credibility and independence. This will be good news. But we will likely have to go through the “bust? first.
 
5 – I am not well equipped to navigate bubbles where tactical views and secular views are all thrown into the melting pot together, where there is no visibility, where – as one client put it to me recently – we have Monetary Anarchy running riot, where the elastic band between the ‘real’ economy and the current liquidity-fuelled markets is stretched further and further beyond credulity, and where history tells us that policymakers will happily stand by whilst bubbles are being pumped up, and hope that they are onto their next job before it all comes tumbling down. It seems that the 07/08/09 part of this crisis has resulted in zero lessons learned. In fact it is much worse than that as we are instead being asked to double up on a strategy which I fear will end in failure. As such, clearly my outlook in my last note needs to be re-assessed in terms of the latest developments. Whilst equity market levels are still within the tolerance limits set out in this previous note, my timing is clearly being “stretched?. Unfortunately for me, and as warned in the prior note, if my outlook set out therein is proven to be wrong, it is because I am overly cautious. I say “unfortunately? because the longer we have to wait for the “final? resolution to the global financial crisis, the bigger and more devastating the final leg lower will be. I have an extremely high level of conviction on this point.
 
6 – So, in terms of markets, be warned. My personal recommendation is to sit in Gold and non-financial high quality corporate credit and blue-chip big cap non-financial global equities. Bond and Currency markets are now so rigged by policy makers that I have no meaningful insights to offer, other than my bubble fears. Real assets are relatively attractive. But I am going to wait for this current central bank bubble to burst before going all in. I may be waiting 5 days, 5 weeks, 5 months, perhaps 5 quarters. It all depends on when and how our central bank leaders are exposed as lacking credibility and/or lacking the mandates to keep pumping liquidity into the system. The end of the bubble will be sign posted by either monetary anarchy creating major real economy inflation or by a deflationary credit collapse (if they run out of pumping “mandates?). The end game is incredibly binary in my view, but in between it is pretty much a random walk. Either way, “bonds are toast? in any secular timeframe (due either to huge inflationary pressures, or due to a deflationary credit collapse), which in turn means that asset bubbles in risky assets will get crushed on a secular basis.
 
My colleague Kevin Gaynor has a more nuanced view and he feels that we may well avoid the bubble outcome, as political hurdles, political changes, growth and earnings data will all very quickly undermine central bankers and their bubble vision. For all our (long term) sakes, I hope I am wrong when it comes to fearing another round of liquidity-fuelled bubbles, and that he is right that “good sense? will prevail soon.
 
I will continue to use the Dow/Gold charts to continue to guide me going forward. The USD price of an ounce of gold and the Dow will, I believe, converge at/around 1, at some point over the next 2 years or so. I have extremely high conviction on this. What I am not sure on is whether we converge at 7000+/-, or at 14000+/-. Because I do believe that even Bernanke and Draghi cannot do as they wish and that there are some limits to the recklessness of policymakers, I still lean towards a deflationary resolution at/about 7000 in the next year or two. Pretty vague, I know, buts it?s the best I can do right now, and what is clear is that, in the world I fear ahead, gold is a winner either way – remember, gold is a great (monetary) inflation hedge, and in a deflationary credit collapse gold works as a store of value/wealth as it carries zero credit risk.
 
As a “credit? guy at heart I see more likelihood in a deflationary credit (i.e., a “real?) collapse rather than a real economy inflationary (nominal) collapse. Either way however, what is clear is that if Bernanke and Draghi are allowed to continue on their current policy path for much longer, then whatever the final outcome will be, it will likely leave a deep scar on us for decades. Which on a ten-year timeframe may not be such a bad thing as it should kill off monetarism and usher in a new era of monetary and fiscal prudence? In the near term, LTRO2 at month-end is the next clear focus for markets, more so than Greece. If LTRO2 is USD1trn or more, the market will take that as a signal to load on more leverage, more risk and more ‘carry’. If LTRO2 is in the order of USD250bn to USD500bn, Risk Off will be the order of the day as markets will start to fear that central bankers are having to reign back-in their current policies, and that as a result we face another period where central bankers and policymakers fall back behind the curve. LTRO1 clearly took policymakers from behind to ahead of the curve, but this is an extremely fluid situation, where doing nothing is, in reality, the same as going backwards. As the skew of expectations is to a large LTRO2, a LTRO2 take-up in between these ranges is likely to be viewed with neutrality/mild disappointment.


Read more: http://dailycaller.com/2012/02/20/bob-janjuah-markets-are-so-rigged-by-policymakers-that-i-have-no-meaningful-insights-to-offer/
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JDN
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« Reply #1194 on: February 20, 2012, 10:34:37 PM »


Glad you could try to sate your anti-semetic streak by blaming Israel though.

Any chance you can stick to the facts, rather than as usual when you don't have any, you post snide bs emotional retorts?  Or is that asking too much from you?

As for the market, anyone can have an opinion (Bob Janjuah).  Throw enough %^&*( against the wall....   Bullshit talks, but the market, at a recent high walks.....
In spite of Iran, in spite of Europe's problems, the market has risen; the market likes our economy (Obama)....

Be grateful GM, your union police pension plan is up!
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G M
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« Reply #1195 on: February 20, 2012, 10:43:46 PM »

Any chance you can stick to the facts, rather than as usual when you don't have any, you post snide bs emotional retorts?  Or is that asking too much from you?

Anyone who pays attention can see your motivations.

Be grateful GM, your union police pension plan is up!

No. Like most all public pensions in the US, it's deep underwater and will be broke in five years or so.
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JDN
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« Reply #1196 on: February 20, 2012, 10:49:41 PM »


Be grateful GM, your union police pension plan is up!

No. Like most all public pensions in the US, it's deep underwater and will be broke in five years or so.

Actually, most public pensions plans like yours are paid for by the public.  And, like most police pension plans, unlike private plans
you can retire after 20 years and immediately begin collecting benefits.  If you start at age 20, you can retire at age 40 with a substantial
pension benefit starting at age 40 for the rest of your life.  Nice deal if you can get it.  No wonder we are going broke.

As for it going broke; don't worry.  Private plans fold, but public pension plans usually just stick it to the public.  So your ok.
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G M
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Posts: 12086


« Reply #1197 on: February 20, 2012, 11:04:06 PM »


Be grateful GM, your union police pension plan is up!

No. Like most all public pensions in the US, it's deep underwater and will be broke in five years or so.

Actually, most public pensions plans like yours are paid for by the public.  And, like most police pension plans, unlike private plans
you can retire after 20 years and immediately begin collecting benefits.  If you start at age 20, you can retire at age 40 with a substantial
pension benefit starting at age 40 for the rest of your life.  Nice deal if you can get it.  No wonder we are going broke.

As for it going broke; don't worry.  Private plans fold, but public pension plans usually just stick it to the public.  So your ok.

I'm not sure what pension plan you are talking bout, but that's not mine. The pension is broke, as is the public. Big haircuts for everyone. The idea of retirement is dead.
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JDN
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« Reply #1198 on: February 20, 2012, 11:41:56 PM »

Actually no, the pension plan for the public is never broke.  If a private plan goes belly up, well everyone i.e. the retirees suffer.  It's broke.  At a public plan, the retirees don't suffer; only the public who get's stiffed suffer. They just raise taxes to pay.

"Pension obligations are a form of off-balance-sheet debt. As funds approach exhaustion, states will be forced to borrow to replenish them. Some have already done so. Thus, pension obligations will be converted into explicit liabilities."

Bottom line, my taxes will go up to pay exorbitant and accelerated police and fire pension plans.  Money for schools and other programs will suffer. The ONLY ones who suffer are the public.  The ONLY ones who "win" are the public employees, i.e. police and fire etc.

As I said, you should say your prayers at night; "and thank you Lord for my union...."
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G M
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« Reply #1199 on: February 21, 2012, 07:16:26 AM »

http://blogs.the-american-interest.com/wrm/2011/11/23/staggering-markets-crash-state-pension-funds/

November 23, 2011


Staggering Markets Crash State Pension Funds


State and local governments around the country have long underfunded their pension funds, covering the gap between what they have and what they have obliged themselves to pay by making unrealistic assumptions about the rate of return they expect from their investments.
 
Now that the wave of Boomer retirement is starting to hit, the gaps are beginning to hurt.  Cities and states all over the country are having to choose between paying for desperately needed services or making up the deficits in their pension plans.
 
The latest news from the New York State pension funds points to the next dimension of this unfolding crisis.  Given the financial market turbulence of recent years, pension funds aren’t even growing at modest rates. In many cases, they are shrinking due to losses on investments.  In the third quarter of 2011, New York pension funds lost more than 7 percent of their value.

States have over promised, under invested, overestimated rates of return and are now losing money in generally weak market conditions.  Worse is going to come; after years of pandering, denial, evasion and distortion, some ugly truths can no longer be ignored.  The Boomers will not get all the pension payments they expect; other generations will pay more toward those reduced Boomer pensions than they want to pay or think is fair.  None of this will be pretty, and there are no easy solutions to be found.
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